This blog runs parallel to a new poetry blog 'Poetry Pinfold' (poetrypinfold.blogspot.com), and a new blog with poems in Dutch (bartnooteboomgedichten.blogspot.com)

Wednesday, March 27, 2013

86. What market?

In the
previous six items in this blog I discussed art, and there are six more to
come. For the sake of variety, however, as an intermezzo I insert this item on
markets. In the intense debate on markets following the present financial and
economic crises there is a conceptual problem: when critics and supporters of
markets quarrel, are they talking about the same thing?

In the
widest sense, Markets are processes of supply and demand on the
basis of private choice and initiative that yield selection of success by
competition and institutions. Market places are places where supply and
demand meet. A meeting of supply and demand is needed to enable division of
labour, needed as a source of prosperity.

A much
narrower notion of markets is the economist’s idealized model of perfect
competition, where a mere mechanism of prices, without any government
intervention, in laissez faire, yields an optimal allocation of scarce
resources. It was an intellectual challenge to prove that analytically Adam
Smith’s idea of the invisible hand could work. However, it has little,
if anything, to do with reality. It is a fairy tale. I call it the mythmarket.
Yet it has mesmerized generations of economists and policy makers influenced by
them, who pursued it as an ideal, and a universal panacea, in spite of its
obvious clash with reality, driven by the underlying political dream of laissez
faire.

An
alternative is to see markets more widely and to recognize their imperfections.
They require a host of institutions to work. Competition is imperfect in many
ways and requires a variety of government interventions. Markets do not satisfy all social
goals and seriously damage a number of them. Many economists recognize this.
Behind supply and demand there are social and psychological processes of choice
and processes of production and innovation. Much of that requires
collaboration, next to competition. Some economists recognize this. However,
here collaboration is still driven entirely by self-interest. There is no room,
economists think, for altruism or normativity that may be detrimental to
material self-interest. In markets, altruistic firms would not survive.

I disagree. As I argue elsewhere in this blog (items 46, 54), I think
that the human being has an instinct for both self-interest for the sake of
survival, and altruism for the sake of social legitimacy and cohesion, with a
corresponding sense of normativity next to self-interest. Also, due to
imperfect competition there is some room to make allowances for social
responsibility.

There is more. In supply and demand there is not only trade, in transactions, but also interaction, in relations. Those not only have extrinsic value in
generating material welfare but also intrinsic value. Labour
also not only has extrinsic, instrumental value for the sake of income but also
intrinsic value as part of the good life. Here, I adopt an ethic not only of utility but a wider virtue ethic of the good life, adopted from Aristotle, as argued earlier in this
blog (item 39).

In sum, I
propose a categorization of markets that is summarized in the scheme below.

idealized
market cooperative market social market humane market

(the mythmarket)

competition yes yes
yes yes

collaboration no
yes yes yes

altruism/normativity no no yes yes

intrinsic value no no no yes

Still
crucial in this wider notion of markets is the idea of maximum freedom, and
hence variety, of choice and initiative. That is what makes it different from
central planning. That element of ideology remains.

I plead for
the humane market, not recognized by economists. Next to competition it
includes collaboration, with a certain amount of altruism and normativity next
to self-interest, and recognition of intrinsic value of labour and economic
relations.

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